Tuesday, August 05, 2008

Fresh signs of an economic slowdown have raised expectations that the Reserve Bank will move soon to cut official interest rates, providing struggling home buyers with their first rate relief in seven years.

In the latest indicators of a faltering economy, new figures have confirmed that the jobs market is deteriorating, and that house prices have been falling in big cities including Melbourne.

The Reserve Bank board will meet in Sydney today, and discussions are expected to focus on the timing of a cut in official interest rates.

The meeting will be asked to consider whether there are clear signs that the economy and inflation pressures are easing or whether it should wait for more confirmation before beginning to cut rates...
The bank will announce its
decision at 2.30pm.

RBA staff believe that
although inflation remains high,
the worst of the prices pressure
has passed and the inflation rate
should fall back to within the
bank’s 2 to 3% comfort zone by
2010. They also believe there is
no need to wait until that happens
before cutting rates.

A report sent to board members
on Friday said that since the
last time they met there had
been confirmation that retail
sales had plunged, that credit
growth had fallen to a six-year
low and that business and consumer
confidence were close to
recession levels.

Yesterday, the Bureau of
Statistics released figures revealing
that prices of established
houses fell in four of the nation’s
eight capitals in the June quarter.
In Melbourne, the index of
established house prices fell by
0.3% — its first quarterly fall
since March 2005.

The index of established
house prices is considered more
reliable than others prepared by
estate agents as it compares ‘‘like
with like’’ — similar-size houses
in a similar mix of suburbs.
ANZ economist Alex Joiner
said he was not surprised at the
deterioration, saying the housing
market had been pummelled by
‘‘a perfect storm of higher mortgage
rates, poor affordability,
high petrol prices, increases in
the costs of living and the beginnings
of a broad-based economic
slowdown’’.

However, he expected that
underlying demand and supply
conditions would shield the market
from further sustained falls.
Also indicating a slowing
economy was the ANZ’s measure
of job advertisements, which slid
a further 0.3% in July after falling
3% in June.